The Clinton Foundation has recently been in the news for allegedly failing to report foreign-sourced contributions on its annual Federal Form 990, Return of Organization Exempt From Income Tax, dating back to 2010. In a May 19, 2015 letter to Internal Revenue Service (“IRS”) Commissioner John Koskinen, Marsha Blackburn, R-TN, along with 51 other members of Congress, requested that the IRS review the tax-exempt status of the Clinton Foundation. It should also be noted that the Clinton Foundation retained the services of a professional certified public accounting firm to audit its financial statements and prepare its Forms 990 for these years.

THE CLINTON FOUNDATION BACKGROUND

The Clinton Foundation was established in 1997 in conjunction with former President Clinton’s vision of creating a nongovernmental organization that could leverage the unique capacities of governments, partner organizations and other individuals to address rising inequalities and deliver tangible results that improve people’s lives. Its mission is to improve global health and wellness, increase opportunity for women/girls, reduce childhood obesity, create economic opportunity and growth and help communities address the effects of climate change.

FORM 990, SCHEDULE B REPORTING

Form 990, Schedule B, Schedule of Contributors, requires tax-exempt organizations to report detail with respect to certain contributions received by the tax-exempt organization that are reported in Form 990, Part VIII, Line 1. According to the Form 990, Schedule B instructions, a contributor (person) includes individuals, fiduciaries, partnerships, corporations, associations, trusts, and exempt organizations. In addition, Internal Revenue Code §509(a)(2), §170(b)(1)(A)(iv), and §170(b)(1)(A)(vi) state that organizations must also report governmental units as contributors. Contributions reportable on Schedule B include contributions, grants, bequests, devises, and gifts of money or property, whether or not for charitable purposes.

THE LETTER

In the Letter, Blackburn and her 51 colleagues cited two major issues surrounding the Clinton Foundation. First, they claim that the Clinton Foundation failed to accurately report foreign government grants received between 2010 and 2012. The Acting Chief Executive Officer of the Clinton Foundation responded by stating that “our error was that the government grants were mistakenly combined with other donations”. Former President Clinton expanded on this by stating that the omissions were “just an accident”.

Secondly, the Letter cited a Washington Post article dated May 3, 2015 which details the relationship between former President Clinton and Frank Giustra, both board members of the Clinton Foundation. The article indicates that Giustra has donated more than $100 million to the Clinton Foundation and that “Clinton has also gained regular transportation, borrowing Giustra’s plane 26 times for foundation business since 2005, including 13 trips where the two men traveled together”.

IRS EXEMPT ORGANIZATION MONITORING

The IRS has increased its awareness of the activities of tax-exempt organizations in recent years. In order to facilitate its monitoring of these organizations, the IRS welcomes the public to file complaints, which are known as referrals, of any known activities in which organizations are abusing their tax-exempt status. These referrals are sent to analysts in the IRS Exempt Organizations Classifications Office in Dallas, Texas where the IRS issues an acknowledgement of receipt of the referral. The IRS is not permitted to disclose whether or not an examination has been initiated, nor can it reveal the results of an examination to any party other than the examined organization.

Concurrent with these guidelines, the IRS responded to the Letter with a form letter dated June 3, 2015 stating that “there is an ongoing examination program to ensure that tax-exempt organizations comply with the tax law and they will consider the submitted information within that program”.

CONCLUSION

The Clinton Foundation, along with all other tax-exempt organizations, need to be careful to include all necessary disclosures in their annual Form 990 filings in order to be compliant and avoid being questioned by the public or the IRS about the validity of their tax-exempt status. In addition, potential penalties exist for failure to accurately complete a Form 990. Even when a tax-exempt organization such as the Clinton Foundation engages a professional certified public accounting firm, reporting issues, or the lack thereof, can still arise.

If you have any questions, please contact your WithumSmith+Brown professional, a member of WS+B’s International Services Group or email us at international@withum.com.

The items in this blog are informational only and are not meant as professional advice. Consult with your tax advisor to determine how any item applies to your situation. Kimberlee Phelan writes Where In the World, and any opinions expressed or implied are not necessarily shared by anyone else at WithumSmith+Brown.

Author

Kimberlee S. Phelan, CPA, MBA, specializes in international tax, concentrating her efforts on special projects involving corporate tax research and planning, as well as inbound and outbound international structuring for corporations and individuals. She is actively involved in Withum’s international affiliation of firms, HLB International, serving as the co-chair of the HLB North America Tax Services Group as well as co-chair of the HLB International Tax Committee.

Having travelled to over 40 countries, Kimberlee will write about her experiences in this blog, highlighting interesting discoveries, tax and accounting law changes, as well as important business and etiquette tips.